Housing math more painful than trig.

From the WSJ:

Yea! Home Prices Hitting Bottom. Now, the Bad News.

This is a great time to buy a home in many parts of the country. There are signs that the downward price spiral is bottoming out. Mortgage rates are at historic lows.

The next few years could well be remembered as the best opportunity for Americans to buy homes since the postwar baby boom.

But one group’s opportunity is another group’s problem. Tens of millions of baby boomers and other home owners have seen their equity shrunken or wiped out completely. Many were counting on their homes to help finance their retirements. Often they have been waiting for years for the market to turn. Now they find themselves on the short end of the deal, sellers into the buyer’s market of the century.

“It’s a really challenging environment to be a seller,” says Lawrence Glazer, wealth adviser at Mayflower Advisors in Boston. “Unfortunately, many people planning to retire may have no choice.”

The last crash took more than a decade to work through—and this market could take an especially long time because the huge accumulation of empty, foreclosed houses will hold down prices for all properties.

When adjusted for inflation, the Case-Shiller index didn’t return to its 1989 peak until 2000. Some markets, such as New York and Los Angeles, didn’t hit new highs until 2002. This time may be even worse because the bubble was much, much bigger. Some locations may not recover their inflation-adjusted peak in our lifetimes.

The bottom line? The national housing market may take many years to recover. It’s a buyer’s market, but home owners hoping to sell need to do their math first.

This entry was posted in Economics, Housing Recovery, National Real Estate. Bookmark the permalink.

91 Responses to Housing math more painful than trig.

  1. grim says:

    From Reuters:

    In the U.S. housing market, recovery or Lost Decade?

    The worst U.S. housing crisis since the Great Depression has been declared over. But is it?

    What some of Wall Street’s forecasts for a recovery may be underestimating are tectonic shifts in the U.S. economy that make the housing market a different place from a decade ago.

    Record levels of student debt, 15 years of flat incomes and the fact that nearly half of homeowners are effectively stranded in their houses look likely to weigh on prices into the indefinite future.

    Several housing experts have said the market is in danger of drifting for years. In a bleaker scenario, the fragile U.S. economic recovery could slip back into recession if Europe’s crisis deepens or the political impasse in Washington triggers a new budget crisis, putting the housing market at risk again.

    “We’ve gone through half of a lost decade since the crisis started in 2007,” said Robert Shiller, co-founder of the Case-Shiller U.S. housing price index and an economics professor at Yale University.

    The so-called Lost Decade in Japan occurred after the speculative bubble in the 1980s, when abnormally low interest rates fueled soaring property values. The ensuing crash has continued to afflict the Japanese economy ever since.

    “It seems to me that a plausible forecast is, given our inability to do stimulus now, for Japan-like slow growth for the next five years in the economy. Therefore, if there is an increase in home prices, it’s modest,” said Shiller.

    A Reuters poll published on Friday showed most economists think the U.S. housing market has now bottomed and prices should rise nearly 2 percent in 2013 after a flat 2012.

  2. grim says:

    From Bloomberg:

    ‘Lost Generation’ of Homeowners May Just Be on Hold

    Blase Hennessy is about halfway through a three-year residency in internal medicine at Wexner Medical Center at Ohio State University, with full-time job offers already wafting in. Last spring the 27-year-old flirted with the idea of buying a condo for the duration of his residency, figuring he could sell it and make a few bucks if the job market pulls him out of Columbus. Then he learned his landlord had paid $200,000 for the one-bedroom roughly five years ago. And that for almost two years it had sat on the market listed for only $150,000. “When I saw that, I said, ‘Forget it,’” Hennessy says. “It’s just too scary.” Today he rents the unit instead.

    For some analysts, the scariest outcome of the collapsed home-price bubble is that it could turn an entire generation of would-be homeowners into perma-renters. Yale economist Robert Shiller floated the idea of a “lost generation” of homeowners in interviews with Reuters and Yahoo Finance. He thinks there is a chance that home prices in the suburbs may never rebound in our lifetimes.

    Other economists and real estate experts say young would-be home buyers haven’t given up on real estate as an investment. It’s just that stifling student loan debt and the unstable job market have made it all but impossible—and it may be years before that changes. A study by the John Burns Real Estate Consulting firm predicts the homeownership rate for 25- to 34-year-olds will continue falling through 2015. It says the number of first-time home buyers has dropped 20 percent since 2009.

    Losing young home buyers is hugely damaging to the broader economy. Housing contributes roughly 18 percent to U.S. gross domestic product, and a 2012 study by Harvard’s Joint Center for Housing Studies on the state of the nation’s housing found that if household formation had held steady at its pre-recession rate, there would be an additional 1.3 million U.S. households.

    But the Harvard study also concludes that household formation is likely to spring back when job growth returns. Some young renter-workers I contacted supported that idea, as did an economist who has studied investor psychology. “This is purely an economic phenomenon, not a behavioral one,” says Ben Sopranzetti, a professor at Rutgers Business School.

  3. freedy says:

    http://www.nj.com/news/index.ssf/2012/07/revel_lays_out_its_cards_casin.html

    One of the dumbest moves in NJ history. By its own admission the Revel is simple taking revenue from the other Casinos . And record tax benefits to boot .
    This is really stupid

  4. yo says:

    #3
    It is a known fact that this country was able to keep low interest rates due to the subsidy of the GSE’s to the housing mortgage market.Which means they own 90% of the mortgages in this country.Banks makes money on servicing the loans.To say the banks are losing money holding foreclosure is simply not true.It is the taxpayers that are losing money for we own the GSE’s.In turn the GSE’s can hold this foreclosures and sell them bulk.This is what holding home prices in desirable cities and it vicinities.

    I believe the media is setting up the younger generations mindset through articles of being a renter.Setting for this investor owned homes that will come to the market for rent.And a decline of home prices will be prevented by this.

  5. Brian says:

    From NJ Herald:

    Study: There’s poverty amid affluence
    Posted: Jul 15, 2012 1:11 PM EDT Updated: Jul 15, 2012 8:50 PM EDT

    By JESSICA MASULLI REYES
    jmasulli@njherald.com
    Sussex County is situated in one of the most affluent states in the country, but for low income people on the brink of poverty two, three or even four jobs is not uncommon, according to a local survey.
    The public’s perception has often been that those in poverty are lazy and do not want to work, but a survey of people who use Northwest New Jersey Community Action Partnership (NORWESCAP) services is showing just the opposite, according to NORWESCAP CEO/Executive Director Terry Newhard.
    “We live in an affluent area,” Newhard said. “Just look outside. It’s beautiful here so it’s easy to not see your neighbor struggling.”
    The survey, which included 1,100 NORWESCAP participants in Morris, Sussex, Warren, Somerset and Hunterdon counties last summer, is conducted every five years, and is used to bring awareness and plan future programs. The most recent 47-question survey found that of those that responded, 44 percent were employed, but many are under-employed, are working at half their previous income, or are working multiple jobs to make ends meet.
    “A lot of these people have jobs,” Newhard said.
    “They are play-by-the-rule folks, working folks,” said Kay Reiss, NORWESCAP board chairperson.
    “Given the median income for our area … there is a large gap between the people we see come through our doors and the rest of the population,” Reiss said. “There are many hard working people who don’t meet the general perception of what poverty looks like and they are our neighbors.”
    Robyn, a 51-year-old from Budd Lake, recently graduated from the Circles program, a NORWESCAP initiative to help local families overcome poverty. Robyn works hard in a restaurant, but low-wage jobs have rarely been enough for her family to thrive on.
    “I love working,” said Robyn, who did not wish to give her last name. “I want to get up early every day and get going.”

    Living on $7.25
    Newhard often charges people to think about how they would truly live on the minimum wage, which in New Jersey is $7.25.
    “There is a perception that (low income people) are stupid, but I challenge people to make decisions on how to survive on $15,000 in this country,” Newhard said.
    For example, minimum wage at 40 hours per week leaves a person with $1,160 per month, not enough to cover the $1,318 fair market price rent on a two-bedroom apartment. Then, if the person has a child or children, the cost for child care, health care, transportation and food on a minimum wage salary is nearly impossible.
    Newhard asks individuals to think about what they could cut to make ends meet– a $10 birthday gift for a child, groceries, cable television, car insurance, electric bills, gasoline to get to work, health insurance, water bills, or day care?
    “Poverty does exist,” Newhard said. “You can’t make it (on minimum wage) without the help of these organizations (like NORWESCAP).”
    For Robyn, these decisions have been a reality her entire life. She focuses on supplying the basics for her and her six-year-old granddaughter.
    “If you have a roof over your head and transportation and food, the basics, then you are OK,” she said. “But, people shouldn’t just have the basics.”
    She said that she often makes choices, such as about taking a trip to the store since it will use gas or about buying cheaper fruit snacks versus healthier fresh fruits at the grocery store.
    “It can be scary and you feel insignificant sometimes,” Robyn said. “The good thing is having gas money and milk money on the way home from work.”
    Newhard also explained that one of the most difficult parts of living on minimum wage or low wages in New Jersey is that the individuals are surrounded by wealth, which increases the cost of housing and other necessities. Morris, Hunterdon and Somerset counties consistently make the top 10 wealthiest counties in the United States.
    Even in Sussex County, the self-sufficiency wages for two adults and two children in 2008 was nearly $60,997, according to Legal Services of New Jersey. Most families in the area still live high above this.
    But, 3.6 percent of Sussex County residents are living under the poverty level, which the government currently defines as under $22,350 for a family of four, according to numbers from the 2006-2010 American Community Survey conducted by the U.S. Census.
    It is far worse for places like Sussex Borough, Newton and Andover Borough, where poverty levels reach double-digits.
    It can be daunting to survive in these areas on that income, especially since the definition of poverty is the same regardless of the region or cost of living in an area, Newhard said.

    The survey says…
    While this survey cannot be considered a statistically significant reflection of the region, it can be useful in understanding poverty and the individuals who use NORWESCAP services.
    The majority, or about 70 percent, said that they rent housing, but Newhard has also seen a big shift where multiple generations of family members are now living in the same household.
    “The number of people doubling, tripling and even quadrupling up in housing increased,” Newhard said.
    Other findings showed that the economy has taken a toll since 22 percent of respondents had been laid off and 29 percent said that their hours were reduced at work. These employment prospects also contributed to the figure that half of the respondents did not have health insurance coverage.
    Respondents realized that without higher education, living wages were difficult to obtain. A high-school graduate in New Jersey can expect to make about $27,000 for a female and $45,000 for a male, but by earning a bachelor’s degree, those numbers increase to about $47,000 for a female and $74,000 for a male, according to United States Bureau of Labor statistics.
    The NORWESCAP surveys showed that there was an increase in people returning to school for their GED and associate’s degree, especially since finding employment has become more competitive.
    Robyn was unemployed for a short amount of time, but she has now found work in a new restaurant. She joined the Circles program last year and has continued on with it past her graduation last month. Circles has helped her to identify goals, such as enrolling in online courses for bookkeeping.
    In about six months, she will take a test to become a certified bookkeeper. After this, she plans on going to college for accounting.
    The goal setting and her own successes have not gone unnoticed by her granddaughter.
    “Her watching me take the classes is so important,” she said. “She now always wants to be on the computer.”
    Robyn also tries to instill a strong work ethic in her granddaughter.
    “We have conversations about the importance of school,” she said. “I tell her that her job is to go to school and my job is to work.”
    But, Robyn still struggles to find affordable and trustworthy childcare for her granddaughter, especially during the summer when school is out. Other survey respondents agreed that their greatest needs are affordable housing, transportation, affordable child care and health care, even surpassing the need for better employment opportunities.
    “The (greatest need) that always strikes me is that after housing was dental service,” Newhard said, explaining that dental care is something that often cannot be paid for without insurance, even if there is a toothache or missing teeth.
    When NORWESCAP realized this in a survey years ago, they went about opening a dental clinic in Newton.
    “The surveys help us in our planning,” Newhard said. “We have given up programs and pursued other programs because of the survey.”
    Other findings from both the field and the survey have documented the “hustling backward” factor, where the harder low income individuals work, the more that is taken away from them. Also, it showed that two-income families feel frustrated that they don’t qualify for child care.
    Federally-funded health programs for women, infants and children (WIC), Medicare and Medicaid eligibility has also risen over the years.

    Looking toward the future
    While the results of this survey may be disheartening for those that want poverty to disappear, 51 percent of the respondents see their situation improving in 2012.
    “While we like to blame the individual for poverty, the whole community has to be engaged in solving the issue,” Newhard said. “You, me, the community, the government; we all need the will to change, to create an investment mentality and make it a priority or poverty will always be with us.”
    He explained that NORWESCAP takes the approach of helping individuals establish relationships and networks that are needed to escape poverty. It is not about handing out food, housing, money or other goods, but instead about helping establish relationships.
    Robyn also sees her life changing in the coming years, but the economy won’t be her changing factor.
    “I don’t see the economy getting better, but I’m just being persistent and I’ll make it,” she said.
    Robyn said that the bookkeeping certification will help her earn a living wage.
    “I want to finish school, have a bookkeeping business, control my own healthcare and have my own place,” Robyn said.
    She dreams of picking a home with a big back yard in a good community with good schools for her granddaughter. She also has set the goal of going on a long-awaited, first-time vacation, possibly to Disney world or to Arizona to visit her other grandchildren.
    “I want to enjoy that fantasy of Disney World with my grandchildren and my children,” she said.
    Someday, she expects to be part of the higher income world that surrounds her in Morris County, one of the richest counties in the country.
    “It’ll be me someday. And, if it’s not me, it’ll be her,” Robyn said, pointing to her granddaughter.

  6. yo says:

    #3
    And the advertisers know the young generations mind can easily be convinced.Growing infront of a tv with bombardment of more expensive cereals and the like which can be bought half the price of a non brand name.They grow up,still the expensive brand name is what they choose.The media knows putting ,being a renter in their mind can easily be believed by them.This is the kind of young people we have replacing the older generation.

  7. raging bull jj says:

    People forget that 1989 to 1994 was as huge wipe out in housing and headlines every day was about RTC, S&L collaspe, coops going bk, people losing fortunes in RE every day, heck Rockerfella Centre even went bankrupt.

    Yet people who graduated college from 1989 to 1995 Were the nuts demographicly who bought the most homes in bubble years Spring 2000 to Spring 2008. Also what bubble? Places like Madsion Park in Manhattan are up 103% since Spring of 2004. The bubble did not burst everywhere, in fact in some places bubble started in 2004

  8. Bystander says:

    Grim,

    Any thoughts on expiration of short sale/FK tax forgiveness this Dec. Not mentioned in media. Will ss/fks pick up last half of year?

  9. yo says:

    Oh Loonie!!

    On July 1, Canada Day, Canadians awoke to a startling, if pleasant, piece of news: For the first time in recent history, the average Canadian is richer than the average American.

    According to data from Environics Analytics WealthScapes published in the Globe and Mail, the net worth of the average Canadian household in 2011 was $363,202, while the average American household’s net worth was $319,970.

    A few days later, Canada and the U.S. both released the latest job figures. Canada’s unemployment rate fell, again, to 7.2 percent, and America’s was a stagnant 8.2 percent. Canada continues to thrive while the U.S. struggles to find its way out of an intractable economic crisis and a political sine curve of hope and despair.

    The difference grows starker by the month: The Canadian system is working; the American system is not. And it’s not just Canadians who are noticing. As Iceland considers switching to a currency other than the krona, its leaders’ primary focus of interest is the loonie — the Canadian dollar.

    As a study recently published in the New York University Law Review pointed out, national constitutions based on the American model are quickly disappearing. Justice Ruth Bader Ginsburg, in an interview on Egyptian television, admitted, “I would not look to the United States Constitution if I were drafting a constitution in the year 2012.” The natural replacement? The Canadian Charter of Rights and Freedoms, achieving the status of legal superstar as it reaches its 30th birthday.

    http://www.bloomberg.com/news/2012-07-15/hardheaded-socialism-makes-canada-richer-than-u-s-.html

  10. Painhrtz - Yossarian says:

    Yo that article has more problems than a hooker looking for a john in a city of puritans.

    Mineral rich country with low population density, low GDP to debt ratio and one other thing went through a period of harsh austerity to improve the value of their currency. also the Canadians benefit from having team america global police force for good providing southern protection so they do not bother to invest heavily in their military. It is a disturbing trend but if our poulation densities were the same Canada would be f*cking Europe.

  11. chicagofinance says:

    “When adjusted for inflation, the Case-Shiller index didn’t return to its 1989 peak until 2000. Some markets, such as New York and Los Angeles, didn’t hit new highs until 2002. This time may be even worse because the bubble was much, much bigger. Some locations may not recover their inflation-adjusted peak in our lifetimes.”

    Who cares? I don’t understand why anything matters other than “what is your house worth today?” and “what is the tax bill if you sell, if any?”

  12. grim says:

    Always thought the majority of Canadians lived within 200km of a US border.

  13. yo says:

    When Standard & Poor’s downgraded the U.S. government’s credit rating in August, predictions of serious fallout soon followed.

    Republican presidential candidate Mitt Romney described it as a “meltdown” reminiscent of the economic crises of Jimmy Carter’s presidency. He warned of higher long-term interest rates and damage to foreign investors’ confidence in the U.S.

    U.S. House Budget Committee Chairman Paul Ryan said the government’s loss of its AAA rating would raise the cost of mortgages and car loans. Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said over time the standing of the dollar and U.S. financial markets would erode and credit costs rise “for virtually all American borrowers.”

    They were wrong. Almost a year later, mortgage rates have dropped to record lows, the government’s borrowing costs have eased, the dollar and the benchmark S&P stock index are up, and global investors’ enthusiasm for Treasury debt has strengthened.

    “The U.S. Treasury is still the widest, deepest and most actively traded in the world,” said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City, which advises community banks on investments of more than $40 billion. “That becomes all the more important when you have signs of weakening global economic growth and continued problems in Europe.”

    Even in a slow recovery, the U.S. has unparalleled assets in the global market, including the size and resilience of its economy and the dollar’s standing as the world’s reserve currency. Low Treasury yields show that most investors believe the U.S. government will meet its obligations, no matter how dysfunctional the political climate becomes in Washington.

    http://www.bloomberg.com/news/2012-07-16/downgrade-anniversary-shows-investors-gained-buying-u-s-.html

  14. grim says:

    Any thoughts on expiration of short sale/FK tax forgiveness this Dec.

    The least pain approach will be to extend.

  15. 3B says:

    This article is a bunch of nonsense. Most people had no idea that prices would get as high as they got at the peak of the bubble. To say that these people were counting on these high prices for their retirement is a bunch of krap.

    Guess what if you paid 189K back in the day for your house, and it shot all the way up to 500K or more at peak, and now its down to 325K, guess what you are fine. Where did this notion come from that today’s buyers need to finance yesterday’s buyers retirement. There is no challenge for sellers today. Price it to today’s market. If you sucked all the equity out, too bad. Just another stupid @ss article from the WSJ.

  16. grim says:

    7 – Mindless group think, ignorance of the details/numbers, broad assumptions, sound bites, “statistics”

    Like pouring dish soap in a bucket of water. Now all we need is some splashing.

  17. yo says:

    I also disagree with the article.There are good points that the author points out.Personally having not to worry about hospital bills while in a hospital dying makes Canada richer for me.
    The US is in or coming out of a severe recession,to say Canadians are richer while the opponent is picking himself up is not a fair comparison.Canada was not widely affected by this bank created global recession

  18. 3B says:

    #2 Old news. Been discussed here for months.

  19. grim says:

    18 – US housing bubble burst, Canada hasn’t yet. How can you compare?

  20. yo says:

    20
    exactly my thought

  21. Comrade Nom Deplume says:

    #$%&()@ used house salesman,

    Just checked up my mls listing. When the broker prepared the draft, we found errors and gave her a writeup of the things that were wrong.

    Were they corrected before MLS went in? Nope.

    Good thing I made my own additions to the listing agreement.

  22. cobbler says:

    Canada is a bit different v. the housing bubble. Proportionately to the population, immigration is quite a bit larger – and unlike here, mostly point system based. As a result, the majority of immigrants are better off than the native born Canadians, and in a year or two become home buyers – Vancouver is the extreme case where the Hong Kong Chinese become buyers even before immigrating. Clearly, the market is overpriced there – but I think its deflation will be much less violent than what we’ve had stateside (ditto for Australia, btw).

  23. Comrade Nom Deplume says:

    Totally OT Alert:

    I know readers here won’t be surprised; we are so ahead of the curve that we can predict the next virulent STD just be reading JJ’s posts. But for those that are surprised, and for those that need disabusing, here is an excerpt from the DoJ’s petition to the Supreme Court on Obamacare:

    “Each of those measures is unquestionably a proper exercise of the taxing power, and, in their practical effect, they are equivalent to the minimum coverage provision—they all use the tax code to provide financial incentives that favor health insurance coverage.
    Indeed, just as deductions, exemptions, and credits operate to reduce a taxpayer’s income tax liability based on the individual circumstances of the taxpayer, the minimum coverage penalty simply has the effect of increasing the taxpayer’s total liability on his income tax return based on his own individual circumstances. In its practical operation, the minimum coverage provision is thus the mirror image of statutory provisions of the sort that have long been regarded as within Congress’s broad discretion to determine the amount of tax owed, and falls equally within Congress’s broad taxing power.”

    http://www.justice.gov/osg/briefs/2011/2pet/7pet/2011-0398.pet.aa.pdf

    It isn’t a tax because the SCOTUS said it was. It is a tax because the Administration said it was and Roberts, et al., agreed.

  24. raging bull jj says:

    SS/FK most likely cant pick up at end of year soley because tax rules change. It takes so long to process that banks have to have it in pipeline at latest right now to get deal done by end of year. Plus if laws change and foregivin debt is no longer tax free all it will do is encourage homeowners not to walk away and pay off mortgage. In reality they should kill it.

  25. 1987 Condo buyer says:

    #24, yes, that is how the administration argued it before SCOTUS, the use of the term “tax” should not have been a surprise to the media after the decision, just shows how poorly people were following the arguments.

  26. Painhrtz - Yossarian says:

    nom don’t worry when chairman O wins his second term history books will show that the impending birth of our dear leader caused sucha stir amongst the GErmans that they decided to quit fighting the war. The ramblings of that plucky graduate student caused the iron curtain to fall and all economic boom times since 1980 were a direct result of his excellency’s meer existence. Of course the rest was Bushes fault.

  27. 3B says:

    Comrade: From yesterday, good luck with the move.

  28. 3B says:

    Jill: From yesterday, did a drive by, people working on it, I assume to get it ready for next weeks open house. Outside looks to be in decent shape, and it is a nice size. It is a possibility.

  29. No one will be spared.

    No one.

  30. I Flavius says:

    Grim (1 & 2) –

    “…housing will spring back when job growth returns.”

    That’s the point, it won’t be returning anytime soon. Nor will housing spring back, but for the price collusion between the realtors and the banks (which both, finance the home and sell it – it’s like buying from the builder’s credit provider – you pay the premium or don’t play).

    I Flavius

  31. Permanent bank zombification, covered up by LIBOR manipulation:

    By Nomi Prins and Paul Craig Roberts

    The Real Libor Scandal

    “According to news reports, UK banks fixed the London interbank borrowing rate (Libor) with the complicity of the Bank of England (UK central bank) at a low rate in order to obtain a cheap borrowing cost. The way this scandal is playing out is that the banks benefitted from borrowing at these low rates. Whereas this is true, it also strikes us as simplistic and as a diversion from the deeper, darker scandal.

    Banks are not the only beneficiaries of lower Libor rates. Debtors (and investors) whose floating or variable rate loans are pegged in some way to Libor also benefit. One could argue that by fixing the rate low, the banks were cheating themselves out of interest income, because the effect of the low Libor rate is to lower the interest rate on customer loans, such as variable rate mortgages that banks possess in their portfolios. But the banks did not fix the Libor rate with their customers in mind. Instead, the fixed Libor rate enabled them to improve their balance sheets, as well as help to perpetuate the regime of low interest rates. The last thing the banks want is a rise in interest rates that would drive down the values of their holdings and reveal large losses masked by rigged interest rates.

    Indicative of greater deceit and a larger scandal than simply borrowing from one another at lower rates, banks gained far more from the rise in the prices, or higher evaluations of floating rate financial instruments (such as CDOs), that resulted from lower Libor rates. As prices of debt instruments all tend to move in the same direction, and in the opposite direction from interest rates (low interest rates mean high bond prices, and vice versa), the effect of lower Libor rates is to prop up the prices of bonds, asset-backed financial instruments, and other “securities.” The end result is that the banks’ balance sheets look healthier than they really are.

    On the losing side of the scandal are purchasers of interest rate swaps, savers who receive less interest on their accounts, and ultimately all bond holders when the bond bubble pops and prices collapse.

    We think we can conclude that Libor rates were manipulated lower as a means to bolster the prices of bonds and asset-backed securities. In the UK, as in the US, the interest rate on government bonds is less than the rate of inflation. The UK inflation rate is about 2.8%, and the interest rate on 20-year government bonds is 2.5%. Also, in the UK, as in the US, the government debt to GDP ratio is rising. Currently the ratio in the UK is about double its average during the 1980-2011 period.

    The question is, why do investors purchase long term bonds, which pay less than the rate of inflation, from governments whose debt is rising as a share of GDP? One might think that investors would understand that they are losing money and sell the bonds, thus lowering their price and raising the interest rate.

    Why isn’t this happening?

    PCR’s June 5 column, “Collapse at Hand,” explained that despite the negative interest rate, investors were making capital gains from their Treasury bond holdings, because the prices were rising as interest rates were pushed lower.

    What was pushing the interest rates lower?”

    http://www.zerohedge.com/news/guest-post-real-libor-scandal

  32. Housing is dead money for at least 50 years. We don’t need Shiller to tell us that…just a little common sense and the math skills of a 7th grader.

    Got bulldozers?

  33. raging bull jj says:

    Inflation adjusted housing has returned zero percent last 50 years.

    New Improved Meat says:
    July 16, 2012 at 12:46 pm

    Housing is dead money for at least 50 years. We don’t need Shiller to tell us that…just a little common sense and the math skills of a 7th grader.

    Got bulldozers?

  34. chicagofinance says:

    Neighbors report….at my behest, I forced my wife to go to a local party….she gots hit with the “oh you are the renters” from…….the wife of the (latest) investment banker who just got laid off (found out from said wife) that bought their house in 2004 on our street (the last sale in the neighborhood). The houses are all sort of $600-$700K range, but these guys just plowed about $250K-$300K in upgrades to the house in 2010-2011. It is completely out of character with the street now…..my g-d what idiots….so they dropped $850K, plus another $250-$300K for a house that should go for $750K-ish……and now hubby gets whacked…..guess there goes the Trump club fees…..

  35. chicagofinance says:

    Who had Stephen Covey in their dead pool?

  36. chicagofinance says:

    Vigoda lives!

  37. raging bull jj says:

    Renting is like yukky. Even people who rent homes themselves are suspect. Actually I personally don’t consider renters or people with mortgages neighbors. Owning money to a landlord or bank each month is such a mediaval feudal way to live.

    Actually the bank refused my offer. I topped prior highest offer than bank wanted more, I was like I actually despise bidding wars and I will not enter a bidding war with myself, I love giving it to the man. Screw You Man, I need to protest, the 1/100 of the 1% the 1% of the 1% are the real rich folks.

    chicagofinance says:
    July 16, 2012 at 12:48 pm

    Neighbors report….at my behest, I forced my wife to go to a local party….she gots hit with the “oh you are the renters” from…….the wife of the (latest) investment banker who just got laid off (found out from said wife) that bought their house in 2004 on our street (the last sale in the neighborhood). The houses are all sort of $600-$700K range, but these guys just plowed about $250K-$300K in upgrades to the house in 2010-2011. It is completely out of character with the street now…..my g-d what idiots….so they dropped $850K, plus another $250-$300K for a house that should go for $750K-ish……and now hubby gets whacked…..guess there goes the Trump club fees…..

  38. raging bull jj says:

    Akorn from F Troop and Fish from Barney Miller have been on top of dead pool forever

    chicagofinance says:
    July 16, 2012 at 12:54 pm

    Vigoda lives!

  39. Libtard in the City says:

    Back from a beautiful weekend, way, way down in a remote part of the DelMarVa Peninsula in Maryland. It’s like another world down there. Even the town we stayed in wasn’t on the GPS. The bay is certainly cleaner and for the first time in my life, I’ve scene flashing plankton in the US. It’s sad to have to return to society.

  40. raging bull jj says:

    plankton? so how was bikini bottom?

  41. Libtard in the City says:

    Funny story. Was down there with nine other guys (mostly Rutgers football fans). This one guy Dan claims that he saw a bull shark between our dock and the neighbor’s to the north. He claimed to have seen fish jumping and then a brown dorsal fin pop up. I plodded deeper into his fish story to find out that he’s a bit of a shark fanatic and he knew way to much about them. The likelihood of a shark that far north in the bay was very highly unlikely. Additionally, we were in three feet of water also making it less likely. Needless to say, I was first in the water. As the tide pulls out a few hours later, a log between our dock and the neighbors becomes exposed by the receding water and indeed, it is shaped like a dorsal fin. Dan is now and forever to be known as Sharkbait. Sharkbait also threw-up all over himself, his bed and slept for 16 hours straight.

  42. raging bull jj says:

    Well so much for the buy muni bonds trade Hope y’all loaded up last five years on 30 year munis, yee haa.

    Interesting dynamic in home buying lately. With yields at an all time low, one would think one would buy a property with a large mortgage to lock in low rates. However, if one has been saving by buying bonds, pretty common since bank cds, money markets are paying nothing one is taking on huge interest risk by not selling his bonds at historical high prices and putting down more or paying cash.

    One is in a pickle is one has 300K in bonds looking to buy a 300K house. The bonds can be just as viotlile as the mortgage rates.

    Other pickly is like 100 billion Trups come do next 30 days where is that money going?

    Final pickle is tax rates are going up in 2013, people with large gains on homes bought pre 1999 may rush to sell by year end causing a distoration of home prices in December.

    All in cash in December 2012 for a high end home may be best pickle, desperate seller with a huge unrealized gain and chance to unload highly appreciated bonds yourself before tax rates rise.

    Lock and load come xmas time.

    Market Post: Munis Still Stronger As Yields Approach Record Lows
    by: Taylor Riggs
    Monday, July 16, 2012

    The municipal bond market continued to firm Monday even after a large rally last week. Munis followed Treasuries higher after economic worries forced the risk-off trade.

  43. raging bull jj says:

    5 year t-bill hit a record low today, 5 year arms are looking good, Although Chico sounded better when he said it

  44. seif says:

    40 – ” Owning money to a landlord or bank each month is such a mediaval feudal way to live.”

    weren’t you recently whining about how you couldn’t get a mortgage?

  45. chicagofinance says:

    Didn’t we used to discuss plankton around here related to the real estate market?

    raging bull jj says:
    July 16, 2012 at 2:23 pm
    plankton? so how was bikini bottom?

  46. chicagofinance says:

    Barton Biggs RIP…..Vigoda Energizer Bunny….

  47. seif says:

    so…with both Christie and Booker coming out against the War on Drugs recently are we gonna see NJ become the Amsterdam of America soon?

  48. Statler Waldorf says:

    If a realtor enters into the MLS system that a house has “Sold” and the sale price, but the house has not actually sold, are there any consequences?

  49. Fabius Maximus says:
  50. Anon E. Moose says:

    JJ,

    How’s your New GM stock doing? You were in on that, right? Too big to fail… Rich Uncle Sam baking them up… what could go wrong?

    http://dailycaller.com/2012/07/16/keeping-up-with-the-new-gm/

  51. seif says:

    52 – thanks. sooner or later there will be some bombshell for Booker…there always is.

  52. raging bull jj says:

    I still like GM stock alot, I should have bought the Pref in the IPO that one is doing well. GM, a German stock, NYX and an Affinnion junk bond bond are only four losers in my portfolio right now. I think all four will come back. Generally, muni bonds and TBTF corporate bonds which are like 98% of my portfolio have done very well. BTW from July 2007 to July 2012, last five years I have an annualized return of 21% a year. Not going to bash Uncle Sam on GM his bailouts of AIG, Citi, BAC, GMAC made me a lot of money. I can afford to give him back a little. Country Wide Bonds are my current winner, bought a bunch at 85 cents on a dollar back in October 2011 that now trade at 115 with a 8 coupon, Brian M should not play poker, everyone knew he was bluffing with the C-wide BK song and dance.

    Anon what is your tip? Cant bash a mans investment without giving an alternative investment. Money never sleeps baby.

    Even I cant believe this bond market. I recall, three years ago folks on this site who were massive gold bulls bashing bonds saying they will collaspe, yet here we are July 2012 and bond yields continue to go lower and lower. Soon we will be at the 1.25% treasury.

    Anon E. Moose says:
    July 16, 2012 at 3:41 pm

    JJ,

    How’s your New GM stock doing? You were in on that, right? Too big to fail… Rich Uncle Sam baking them up… what could go wrong?

    http://dailycaller.com/2012/07/16/keeping-up-with-the-new-gm/

  53. Shore Guy says:

    Ouch! I wonder how much of a return the assumed? What’s that? 7.5%? Well, there are always taxpayers to make up the difference.

    http://www.usatoday.com/money/perfi/retirement/story/2012-07-16/California-state-pension-fund/56256380/1

    SACRAMENTO, Calif. – The nation’s largest public pension fund reported a dismal 1% return on its investments, a figure far short of projections that will likely add pressure on California’s state and local governments to contribute more, officials said Monday.

    The California Public Employees’ Retirement System reported its returns for the fiscal year that ended June 30. The 1% return is well below its projected annual return of 7.5%.

    snip

  54. Homepage says:

    You Lastly want the respect off your family and pals? 289962

  55. Anon E. Moose says:

    JJ [55];

    Anon what is your tip? Cant bash a mans investment without giving an alternative investment. Money never sleeps baby.

    Touche.

    Soon we will be at the 1.25% treasury.

    That’s got a little something to do with where my money is going.

  56. raging bull jj says:

    sadly 1% is a lot better than anyone could get on a 1-2 year bond. I know sr. citizens going on year three of zero returns as they are still too scared to move money out of savings account.

    You can see the reach for yield in places like GMAC bonds whose yield is down to 7% from 9% in last few months for no apparant reason other than all other places to get yield above 6% safely has disappreared.

  57. raging bull jj says:

    Sadly the 1.25% treasury will catch a lot of people off guard. People will have to refinance all over again and people will be kicking themselves for not locking in Ibonds, 5 year cds, ten year treasuries, ten year munis, MBS and ten year investment grade bonds while they had the chance from July 2008 to July 2012 and now after sitting on zero yields for four years they get the chance to sit on zero yields for another three years.

    I am not talking risk taking junk bond nuts like me, but risk adverse people scared of even 5-10 year duration of investment grade assets are getting slaughtered, they cant get last years yields today. Even I cant

    Low mortgage rates are only good for indebted people. Does nothing for people with money to invest.

  58. Shore Guy says:

    Stu is too young to remember 61, but Nom should.

  59. yo says:

    JJ,
    Will you call 1.0 on 10 year by the end of the year?

  60. yo says:

    This Marissa Mayer looks hot

  61. yo says:

    The most mysterious of the unexplained mysteries about Mitt Romney’s considerable wealth is how he was able to amass between $21 million and $102 million in his individual retirement account during the 15 years he was at Bain Capital LLC.

    How did he do it, given the relatively small amounts that the law permits to be contributed to such a plan on an annual basis? Romney has not explained this conundrum, and seeing as he wants to become president, he would be wise to start talking — if for no other reason than there might be many Americans who would like to emulate what he did

    http://www.bloomberg.com/news/2012-07-15/the-secret-behind-romney-s-magical-ira.html

    I don’t want him to be my President.I would like him to write the Revised Tax Code

  62. libtard (42)-

    Those aren’t plankton; they’re Biden’s extended family.

    “The bay is certainly cleaner and for the first time in my life, I’ve scene flashing plankton in the US. It’s sad to have to return to society.”

  63. Oblivion, dead ahead.

    Just embrace it…slip under the cool, cool water and just give in…

  64. Statler Waldorf says:

    Meat, would you know the answer to this?

    “If a realtor enters into the MLS system that a house has “Sold” and the sale price, but the house has not actually sold, are there any consequences?”

  65. statler (69)-

    There are no consequences, as the MLS rules- and most RE laws in NJ- are not enforced.

    As long as the MLS collects their dues and listing fees, they remain content.

  66. Until a few years ago, RE offices regularly entered bogus sales and reassigned closings among agents in order to help them win Million Dollar Club awards. In GSMLS, it got so bad that they began to implement a few controls, but it’s still pretty easy to subvert the system.

  67. If you stand upright and can fog a mirror, you can be a NJ real estate licensee.

  68. freedy says:

    you can also buy a car and finance it

  69. relo says:

    20: Grim,

    Remains to be seen, but from what I understand the legal structure surrounding FK in Canada is different and the banks/gov won’t prolong the agony.

  70. Fabius Maximus says:

    #66 Yo

    A self directed IRA is a wonderful vehicle. The Bain issue is not going away and will just keep shifting directions. Once Mitt thinks the retroactive resignation has died down, this aspect will start picking up.

    http://www.thenation.com/blog/168899/romney-still-reaps-profits-bains-vulture-capitalism#
    As an exhaustive New York Times report noted last fall, “Mr. Romney never really left Bain.”

    “In what would be the final deal of his private equity career, he negotiated a retirement agreement with his former partners that has paid him a share of Bain’s profits ever since, bringing the Romney family millions of dollars in income each year and bolstering the fortune that has helped finance Mr. Romney’s political aspirations,” explained the Times analysis of Romney’s personal finances. “The arrangement allowed Mr. Romney to pursue his career in public life while enjoying much of the financial upside of being a Bain partner as the company grew into a global investing behemoth.”

    Romney’s continued involvement with Bain is not some distant financial arrangement, or some casual connection like Americans might have to corporations via stocks included in their 401K plans

    Though Mr. Romney left Bain in early 1999, he remains a direct beneficiary of Bain’s buccaneer pillaging of the US economy.

    To wit:

    • Romney continued to collect a share of the corporate buyout and investment profits enjoyed by partners from all Bain deals until 2009.

    • Romney, because of his ongoing arrangement with Bain, Romney has collected profits from twenty-two Bain and Bain-related funds. That, as the Times notes, is “more than twice as many over all as Mr. Romney had a share of the year he left.”

    • Romney’s arrangement with Bain allows him to invest his own money in projects pursued by his former partners. As such, Romney is involved in deals from which he continues to share in a portion of Bain’s profits—just as he must share in a portion of responsibility for what the firm does to harm American workers.

    Indeed, as the Times assessment noted late last year, well after he launched his current presidential campaign, Romney was still profiting from “Bain deals that resulted in upheaval for companies, workers and communities.”

  71. Statler Waldorf says:

    “RE offices regularly entered bogus sales and reassigned closings among agents in order to help them win Million Dollar Club awards”

    Thanks, now things make perfect sense.

  72. Fabius Maximus says:

    Politics is all about branding and Brand Mitt can’t catch a break.

    http://www.huffingtonpost.com/2012/07/16/mitt-romney-olympics-outsourced-uniforms-burma_n_1677791.html

  73. Shore Guy says:

    All I want for August is a brokered Republican convention and the emergence of a decent candidate. Oh, and while I am dreaming, Sela, c’mon over.

  74. Shore Guy says:

    At this point, Romney is dead in the water. Instead of the focus of the news being on Romney’s attacks on the Administration’s policies and performance, all the focus is on Romney’s past business dealings. Axelrod is a masterful strategist. Romney needs something big to shake up the race, like getting arrested with a hooker.

  75. Fabius Maximus says:

    #27 Pain

    “Of course the rest was Bushes fault.”

    Bush is not at fault, he is the solution, the 4% solution. I hope I can get hold of a copy tomorrow.

    http://www.amazon.com/The-4-Solution-Unleashing-Economic/dp/0307986144

  76. relo says:

    Bud Fox for President. If he wins, four years from now we’ll be hoping to god the challenger wins. Just like the past however many years.

  77. Fabius Maximus says:

    #78 Shore

    I think there is a good chance you get a brokered convention. I’ll up my long shot to a 30% chance.
    http://njrereport.com/index.php/2012/07/06/jobs-day-open-discussion/#comment-515649

  78. Shore Guy says:

    FM,

    From your lips to God’s ears. The only hope to beat BO is for whatever really bad news there is to come out now, before the convention. If it happens after the nomination, then “That’s all folks.” Better to implode now than in September.

  79. chicagofinance says:

    On the merits
    By Jeff Carroll, JD’12 |
    July–Aug/12
    Blaming big government and big business, a finance professor calls for restoring competition.

    In his book A Capitalism for the People: Recapturing the Lost Genius of American Prosperity [1] (Basic Books, 2012), Luigi Zingales [2] raises alarm bells that an optimistic credo may be in danger of disappearing. “The image many Americans have of capitalism,” he writes, “calls to mind Horatio Alger’s rags-to-riches-via-hard-work stories, which have come to define the American dream.”

    Zingales, Chicago Booth’s Robert C. McCormack professor of entrepreneurship and finance and the David G. Booth faculty fellow, fears that Americans are losing faith in capitalism as the political and economic elite have structured it. Widespread disillusionment has spawned two divergent strains of politically influential populism—the antitax Tea Party movement on the right and the anticorporate Occupy movement on the left.

    Zingales addresses some of their concerns. A Capitalism for the People includes, for example, a chapter differentiating “good taxes” from “bad taxes.” And while he sympathizes with Occupy’s frustration over corporate influence, Zingales rejects its ideas for government intervention and income redistribution as corrosive to individual motivation and productivity.

    The emotions of both movements resonate with him. Surveying the current economic and political atmosphere, Zingales writes, he also feels angry and scared: “Angry because the idea of free markets has been increasingly taken over by entrenched business interests, fundamentally altering the equilibrium of American democracy. Scared that Americans, in their justifiable anger about the way things have gone, will choose a path that brings an end to American capitalism as we know it.”

    American capitalism attracted Zingales to this country in the first place. The lack of merit-based opportunity prompted him in 1988 to leave his native Italy—where, he notes, “the word nepotism was invented”—to pursue his PhD at MIT.

    He has thrived in the United States but now sees a society where the potential for people in similar circum­stances could be threatened. “I have been rewarded handsomely by being here and working hard,” Zingales says. “I want everyone to have the same chance.”

    Inequality itself is not the issue—in a meritocracy, he says, “there is some inequality”—but the public needs confidence that talent and effort will be rewarded over connections and favors. Corporate influence and lobbying have taken such a predominant role in policy making that people across the political spectrum perceive a rigged game not based on free-market principles but the back scratching of crony capitalism. “Zingales’s fundamental diagnosis is right,” a Financial Times review [3]of A Capitalism for the People notes. “Lobbying has run riot, capitalism has become probusiness instead of promarket and cronyism is a real threat. So what are the remedies?”

    Zingales offers solutions that he calls “promarket, not probusiness,” a key distinction in a just economic system and one, he says, that has been overlooked in favor of a business-versus-government “sideshow leftover from 20th-century ideological debates.” A capitalist system, Zingales says, succeeds only when competition—both political and economic—flourishes. Some suggestions: eliminate all government subsidies, whether direct aid or tax breaks; mandate better data disclosure from government and business; strengthen support for whistle-blowers.

    Implementing such reforms, he argues, would begin to restore the “moral foundation of capitalism,” directing regulatory and social pressure at the system’s true threats. “These are the real contrasts that face us,” Zingales writes, “between meritocracy and inherited privilege, between accountability and discretion, between freedom and power, and between free markets and crony capitalism.”

    The private sector, he says, doesn’t have a monopoly on cozy relationships. He cites public education as “perhaps the most destructive cronyism that uses lobbying to extract money from the American people in exchange for a product that doesn’t meet their real needs.” During the 2007–08 election cycle, he notes that the National Education Association, which represents public-school teachers, spent $56 million, the most of any lobbying organization. Yet American students, Zingales adds, scored below average in every subject but reading on an international survey over the past decade. Because of the correlation between quality of education and income, Zingales writes, “as the teachers’ union defends the status quo in education, it is killing the American dream for much of the population.”

    Despite immersing himself in the political and economics climate that has compromised faith in the rags-to-riches American story, Zingales remains optimistic. “I have faith in the American people,” he says. “I also have faith in the strength of ideas.” And faith that, with policies that restore competition and opportunity, Horatio Alger could become a cultural touchstone once again.

  80. Too late to fix anything. The population has been rendered stupid, entitled and lazy. The only remedy is mass bloodshed and the call to action that comes as a necessary reaction to the threat of imminent death.

    We’ll get a return to real capitalism and real markets when it becomes dangerous to drive four blocks to the Wawa for a quart of milk. Too bad that by the time we reach this point, it will be almost necessary for 4-5 million people to die.

  81. Westjester says:

    Don’t you just love those new phishing comments? Delightfully doltish.

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